Theory Of Production Flashcards
Define production
It is transforming factors of production into goods and services
Define vertical integration
It is when companies in the same industry but at different stages of production join together
Define backward vertical integration
It when a firm joins with another firm in the earlier stage of production in the same industry
Define forward vertical integration
Is when a firm acquires another firm at the next stage of the productive process
Define horizontal integration
This occurs when a firm amalgamates with another firm at the same stage of the productive process
Define conglomerate integration
This occurs when firms merge with no obvious link
between the goods and services they produce. One of the main advantages of this is the
‘spreading of risk’ as production is diversified. It is also possible that economies of scale,
namely managerial and financial, can be achieved through conglomerate mergers.
what is the production function?
describes how much output can be produced given a fixed quantity of input, such as labour, capital or raw materials
define poductivity?
refers to the amount of output or value created per unit of input in a given period
Marginal product.
The marginal product is the extra output obtained from the
employment of one extra worker. In other words, it is the change in total product as a
result of employing an additional worker:
What is the definition of the theory of production in economics?
The theory of production in economics explains how goods and services are created using various inputs.
What are the main factors of production?
The main factors of production are land, labor, capital, and entrepreneurship.
True or False: Capital refers only to financial resources in production.
False: Capital refers to physical assets and financial resources used in production.
Fill in the blank: The _______ of production refers to the relationship between inputs and outputs.
production function
What is the law of diminishing returns?
The law of diminishing returns states that as one input is increased while others are held constant, the additional output will eventually decrease.
Which of the following is NOT a factor of production? A) Labor B) Land C) Technology D) Money
D) Money
What does the term ‘total product’ refer to?
Total product refers to the total quantity of output produced by a firm using a given amount of inputs.
True or False: A production possibilities frontier (PPF) shows the maximum possible output combinations of two goods.
True
What is meant by ‘marginal product’?
Marginal product is the additional output generated by adding one more unit of a specific input, holding other inputs constant.
What is the difference between short-run and long-run production?
In the short run, at least one factor of production is fixed, while in the long run, all factors can be varied.
Fill in the blank: The _______ curve shows the relationship between the quantity of input used and the quantity of output produced.
production
What is the concept of ‘economies of scale’?
Economies of scale refer to the cost advantages that a business obtains due to the scale of operation, with cost per unit of output generally decreasing with increasing scale.
Which term describes the maximum output achievable with a given set of inputs?
Production efficiency
True or False: The production function can be represented graphically.
True
What does ‘variable input’ mean in production?
Variable input is an input that can be changed in the short run to increase or decrease production.
What is the role of entrepreneurship in the production process?
Entrepreneurship involves organizing and combining the other factors of production to create goods and services.
Fill in the blank: The _______ of production measures the efficiency of turning inputs into outputs.
productivity
What is the significance of the production possibilities frontier (PPF)?
The PPF illustrates the trade-offs between two goods and shows the maximum output possibilities for each.
What happens to total product when marginal product is negative?
When marginal product is negative, total product decreases.
Which type of production function assumes that inputs can be substituted for one another?
Cobb-Douglas production function
True or False: Fixed inputs can be changed in the short run.
False
What is the relationship between average product and marginal product?
When marginal product is greater than average product, average product is increasing; when marginal product is less than average product, average product is decreasing.
What does a downward-sloping PPF indicate?
A downward-sloping PPF indicates that to produce more of one good, less of another good must be produced.
Fill in the blank: _______ refers to the additional cost incurred when producing one more unit of a good.
Marginal cost
